Singapore Home rates going back to 2003 levels? Not quite

Singapore Home rates going back to 2003 levels? Not quite

Falling interbank rates won’t automatically mean a throwback to the past

By QUAK HIANG WHAI

(SINGAPORE) Singapore interbank rates - the prices banks charge each other for short-term funds - are threatening to fall back to record lows.

In fact, many bankers reckoned interest rates after the recent spate of cuts may be headed upwards.

The benchmark three- month rates are now nearing one per cent, down from around 3.5 per cent a year ago and threatening to ease to the record levels around 0.5 per cent in early 2003. Naturally, it should be good news for homeowners as they expect to see their borrowing costs return to the low levels of 2003, when banks were dishing out loans at 50 basis points and below.

Is this on the cards again? Well, it depends on who you talk to. If you call your local bankers, they are likely to tell you that the domestic and global credit situations are quite different from the Sars days when banks had to fight for their home business.

Foreign banks were relying more on the interbank market for their retail funding and when interbank rates fell to near zero, they were able to price their home loans at well below one per cent. Some of the foreign banks had also just gotten their Qualifying Full Bank licences then and were using their home loan platform and price cutting to jump-start their consumer business. Today, they have been allowed to build a wider retail network of branches and ATMs and they depend more on the retail deposits to fund their home loans.

As such, they are not able to use the undercutting strategy too aggressively, having built up some expensive retail deposits. Maybank, for instance, launched a 1.58 per cent package which was limited to a short promotion period. Given the costs of running the retail branches and the limit that deposit rates can be cut, pricing for home loans is also not given much leeway downwards, local bankers argue.

Also, the banks are more disciplined now with their credit pricing, given the global credit crunch and the sub-prime-related problems in the US. Because of their overall tighter credit policy, it is no longer easy for them to build their business based on an underpricing strategy with risks in property loans having gone up worldwide. In the last quarter, banks such as HSBC and Citigroup continued to write off sub- prime and other real estate-related portfolios at alarming levels.

In fact, many bankers reckoned interest rates after the recent spate of cuts may be headed upwards. ‘Given that the sub-prime crisis and the subsequent credit turmoil has not abated with the financial markets remaining volatile, the outlook for interest rates is still uncertain at this point in time with upside bias as the longer-term interbank rates have been on the uptrend over the past one month,’ said Gregory Chan, head of secured lending, OCBC Bank.

Perhaps the biggest difficulty for the consumer has been the expensive refinancing costs. Banks well aware of the possibility of refinancing in a downward trend market have been clever to price in the higher penalty costs should consumers make their switch. For instance, those who borrowed at around 3.2 per cent last year would have to factor in a 1.5 per cent prepayment charge, repayment of legal subsidies and other administrative charges which may work out to well over 2 per cent of total loan size, making it difficult for them to refinance. As such, some of the banks have actually enjoyed some widening in margins as their deposit rates fell while their home loan rates have not been adjusted down as much.

‘Banks still have to make a margin. People forget that at 2-3 per cent, it is historically still very low for home loans, compared to the days of near 10 per cent after the 1997 crisis,’ said one banker. The bottom appears to hold around 1.6-1.7 per cent for the first year for the time being but with heavy prepayment penalties priced in.

In any case, observers noted - unlike the sluggish credit market of 2002 - Singapore, underpinned by projects such as the integrated resorts and ongoing massive private and public building, is undergoing quite a boom on the corporate front. Local banks have been able to repark their surplus funds elsewhere in better-yielding corporate loans and papers instead of the falling interbank market.

Building and construction loans continued to absorb some of the surplus funds. Bankers reported the spreads in Asia for good corporates have widened by 100 basis points or more in the last few months and Asian borrowers long spoilt by the massive liquidity are now finally paying the right price for loans.

In fact, some developers suspect the banks are nearing their regulatory limit themselves for property-related loans with the two casinos and the ongoing condo building sucking up much liquidity. Smaller developers are even being avoided or squeezed with some getting quoted up to even 400 basis points above interbank.

Banking analysts, however, present a slightly different picture.

One foreign analyst reckoned foreign banks have not pulled their punches and didn’t believe that they have been tied down by other global credit issues.

‘Asia has never been more important to the foreigners and they will remain very active in the region,’ he argued, adding that mortgage demand seemed to have dried up and most of the activity is now refinancing. He figured the foreign banks have actually won market share from the local banks, seen from Q1 results.

The other change is the emergence of interbank- pegged home packages. One analyst said these are becoming increasing popular and the fall in the interbank market would automatically adjust some of these home rates. But he conceded tighter credit controls and a more disciplined approach will mean - all else being equal - that rates will fall less than they would have in the past when Sibor fell.

Also, the looming global slowdown and property downturn could mean banks may have to drop rates again, analysts say.

One thing is for sure: if rates were really to fall back to the levels of 2003, analysts and bankers reckon it would also mean that while you may save on borrowing costs, you would probably have another property recession and negative equity at hand.

The author is a freelance writer

Source : Business Times - 20 May 2008

Singapore Property - Buy , Sell , Rent , Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Waterfront cluster with high-end appeal - Singapore

Waterfront cluster with high-end appeal - Singapore

New Fullerton Heritage zone has luxury retail and dining outlets to draw the well-heeled

By Michelle Tay

RAFFLES Place may be best known as the arena where high-flying bankers and corporate executives slog away for handsome salaries. But a small patch of it is set to become a luxury retail haven where they can spend their hard-earned cash on art, jewellery and fine dining.
The waterfront strip around the historic Collyer Quay is being transformed into a playground for well-heeled locals and tourists, as developers of the Fullerton Heritage zone seek to lure these big spenders away from Orchard Road.

Features range from a luxury retail cluster in The Fullerton Hotel to a classy Chinese restaurant and bar in Clifford Pier by Hong Kong’s trendy Aqua restaurant group.

The overriding strategy is clearly to pull in the well-to-do who might normally shop and dine in and around Orchard Road, the country’s main shopping belt.

The Fullerton Heritage’s general manager, Ms Sulian Tan-Wijaya, said the waterfront destination will ‘create a new luxury retail cluster that currently does not exist in the Raffles Place area’.

Its expected clientele will include business and leisure travellers, executives from the Central Business District (CBD) and new Marina Bay Financial Centre, casino patrons and residents from upcoming condominiums nearby like The Sail and Marina Bay Residences.

The retail element will be concentrated at The Fullerton Hotel, where under-utilised conference rooms have been converted into more than 5,000 sq ft of space for five shops.

The retailers include London-based Singapore fashion designer Ashley Isham; jewellers Mouawad, Vois and Raffles Jeweller; and

a high-end Chinese and Asian contemporary art gallery called I Preciation.

I Preciation has been operating since 2003, while the remaining four will open by July - in time to cash in on the Formula One Grand Prix that is expected to draw 240,000 spectators in September.

Ms Tan-Wijaya is confident that the outlets will enjoy ‘a steady stream of business’ despite the hefty price tags, as 80 per cent of The Fullerton Hotel’s guests are corporate clients.

Brisk sales at I Preciation, where art works go for anything between $10,000 and $4 million, back up her view.

The majority of its clients are executives, high-net worth individuals and keen collectors who work in the CBD, said Mr C.T. Lim, one of the gallery’s two owners.

Raffles Jeweller director Margaret Lau said she was lured to The Fullerton Hotel from Orchard Road, where she has been operating for the last 15 years.

She said the hotel’s rent is not lower than that in Orchard Road, but she looks forward to ‘the prospect of opening up the business to an international corporate clientele’.

She is also confident that her regular clients will make the trip to this newly designated ‘destination shopping’ zone to buy her bling.

The Fullerton Heritage refers to a string of buildings and land opposite Marina Bay owned by Hong Kong-based Sino Land, the sister company of Singapore property giant Far East Organization.

They include existing buildings One Fullerton, The Fullerton Hotel, The Fullerton Waterboat House, Clifford Pier and Customs House.

Sino Land, which is controlled by the family of property magnate Ng Teng Fong, won the tender for the Collyer Quay corridor in December 2006 with a bid of $165.8 million.

Its ambitious plan to revamp the existing buildings while preserving the area’s distinctive architecture is part of larger plans to rejuvenate the Marina Bay area by 2010.

It is also building a luxury boutique hotel called The Fullerton Bay Hotel, which will have 98 rooms with water views, on the site.

Appetites will be catered for with One Fullerton set for an August relaunch with four new eateries.

And Aqua, famed in Hong Kong for its ultra-stylish harbourfront restaurant in Kowloon, will unveil its plans for its ‘Chinese fine-dining’ restaurant in Clifford Pier later this year.

‘We see The Fullerton Heritage as helping to enhance Singapore’s position as a leading tourist, business and lifestyle destination,’ said Ms Tan-Wijaya.

Source : Straits Times - 20 May 2008

Singapore Property - Buy , Sell , Rent , Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com